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State of the Industry: Eco-values Escalate
By: Briony Davies
Posted: June 14, 2007
page 3 of 6Growing at an average of 11% per year for the past five years to reach 2006 sales of $11.7 billion, China has retained its place in the world’s largest and most dynamic markets. Rising disposable incomes continue to be the basic sales driver—average disposable income has grown almost 60% since 2002—allowing consumers to spend an increasing amount on cosmetics and toiletries. Extra cash has also facilitated trading up to more expensive products/brands. This is most pronounced in premium products such as fragrances, skin care and color cosmetics. In addition, growing product awareness and a stronger retail presence have fueled consumers’ interest in cosmetics and toiletries, and constant product innovation and media advertisements have been instrumental in further boosting the penetration of more established brands, such as Olay and Artistry.
Looking forward, the key to unlocking potential in this emerging market lies in tapping into the rural consumer base, which direct sellers such as Avon and Oriflame, having licenses to operate in China, are well placed to do. Multinational manufacturers also need to be aware of local consumer preferences and tailor product portfolios accordingly.
Skin care, with sales of $60.1 billion in 2006, is the largest of all cosmetics and toiletries sectors; it is also the fastest growing both historically and by forecast. Consumers’ desire to reverse, halt and prevent the signs of aging is fueling sales—particularly in the antiaging and anticellulite subsectors, which grew at 10.3% and 9.3%, respectively, to exceed the overall category increase of 7%.
Innovation is a major feature of the skin care sector, largely because brand loyalty is low, particularly in the dynamic antiaging sector, prompting companies to try to lure consumers with eye-catching new developments. Segmentation is sophisticated, and its latest permutation includes encouraging younger women to trade up to higher value products and appealing to consumers over 55 with, for example, whitening and brightening creams, as opposed to traditional antiagers.
Products that mimic the results or experience of beauty salons and spas are also an important trend in skin care, and natural and organic ingredients continue to be a major growth driver. Recent trends include a crossover from food products and source-specific ingredients. The small players that dominate this market niche are becoming acquisition targets as this trend continues to gain momentum, as exemplified by L’Oréal’s recent acquisition of Sanoflore.
Fragrances stood out with particularly strong growth in 2006 compared to the other sectors. Coming in third after sun and baby care sales, fragrance posted an increase of 7% to reach $30.7 billion. In 2005, fragrances had only been the sixth most dynamic sector, beaten out by emerging categories, such as men’s grooming products and skin care, where value-adding had been aggressive. This upturn in fortunes is due largely to the success of the masstige segment, dominated by celebrity-branded scents, in the major Western European markets. Fragrances rose by over 2% in 2006, up from less than 1% the year before. While emerging regions, such as Latin America and Eastern Europe, continue to contribute the most in terms of absolute growth, increases in Western Europe contributed an extra $260 million to 2006’s global total.